I think about it, this thing is really mubling. A while ago, bank deposits were said to be less than 39,200 trillion, where did all this money go? I'll break it for you.
A review of the background of the news
In the past two years, as soon as the epidemic broke out, economic growth slowed down, but bank deposits rose. People have less income, they don't want to spend money anymore, and they keep their money in the bank. The number of deposits announced by the central bank has risen vigorously, as if it has become a "new normal".
But in April of this year, things suddenly changed. RMB deposits suddenly fell by 3.92 trillion yuan, returning to the level of September 2023. As soon as this happened, everyone began to wonder what happened to the economy.
Is the sudden drop in deposits a sign of a recovery in consumption?
Since the start of the pandemic, economists have been hoping that domestic demand and consumption will recover. If there is less deposits, does it mean that the money has finally flowed to the real economy and driven consumption?
Wealth management products attracted 2,000 billion yuan
In April, bank wealth management products were 2 trillion more than in March. This shows that a large amount of money does not go directly into the real economy for consumption, but goes to high-yield financial products. If the money were still in the deposits, the savings would have fallen by half.
Judging from the data released by the bank, in the first quarter of this year, the five major banks, namely the Industrial and Commercial Bank of China, the China Construction Bank, the Agricultural Bank of China, the Bank of China and the Bank of Communications, issued a total of more than 22 trillion new wealth management products, a record high. High-yield wealth management products are not small attractive to money.
Idle funds of listed companies purchase wealth management
It can be seen from the announcements of listed companies that many enterprises use idle funds to buy wealth management products, and they can reach hundreds of millions to dozens of billions at every turn. This shows that a large part of the money transferred out of deposits still remains in the financial system and does not enter the real economy.
Take Kweichow Moutai as an example, the company's 2024 annual report shows that the balance of wealth management products it bought at the end of 2024 is as high as 150 billion, nearly 30 billion more than the end of the previous year. There are many examples like Moutai, and many listed companies are like this. If the idle funds in the hands of enterprises are not used to expand reproduction, they will not flow into the real economy just to buy wealth management products.
Social zero and CPI data are the vane of consumption recovery
If you want to know whether the money has really flowed into the real economy and driven consumption, you have to look at the changes in the total retail sales of consumer goods and the CPI. According to the data for April 2024, the nominal growth rate of social zero was 6.2%, and the real growth after excluding price factors was 5.5%; The CPI rose 0.3% year-on-year. These data show that the recovery in consumption is still weak.
Although the actual growth rate of 5.5% was 2.6 percentage points faster than the first quarter, it was still lower than the pre-pandemic level of 2019. The CPI rose by only 0.3%, which also reflects the lack of strong demand and the lack of significant increases in the prices of industrial goods and services. This shows that there are fewer deposits, but consumption has not rebounded significantly.
As the pressure on banks to collect deposits increases, will the deposit interest rate be raised?
The yield of wealth management products is rising, and the pressure on banks to collect deposits will be greater. Will banks continue to raise deposit rates in order to retain deposits?
The central bank has started a cycle of interest rate cuts
In May 2024, the central bank has already cut the MLF rate and the reverse repo rate, which signals the start of the rate cut cycle. In this case, there is little room for banks to raise deposit rates.
From the perspective of the central bank, the interest rate cut is conducive to reducing the cost of social financing, stimulating credit demand, and creating a more accommodative monetary and financial environment for economic recovery. If banks go against the momentum and raise deposit rates, it will not be conducive to the transmission of monetary policy.
The negative spread dilemma is hard to break
Many banks are faced with negative interest rate differentials (deposit rates are higher than lending rates). Loan interest rates are going down, and if the deposit interest rate is raised again, banks' profit margins will be even more strained. Banks themselves are under pressure, and there is little incentive to continue to raise deposit rates sharply.
Take CCB as an example, the bank's 2024 first quarter report showed that net interest income fell by 9.2% year-on-year, and net interest margin and net interest margin narrowed by 0.08 and 0.05 percentage points respectively from the end of the previous year. As soon as spreads tighten, banks' profitability is severely affected. In this case, a sharp increase in the deposit rate will make it even worse.
The focus of savings may shift to wealth management products
With the pressure of deposit outflows, banks may shift their focus from deposits to wealth management products. Issuing wealth management products with high yields to attract funds can not only retain customers' money, but also bypass the constraints of deposit and loan spreads.
Judging from the data released by the bank, in the first quarter of this year, the issuance of wealth management products hit a record high, but the growth rate of deposits slowed down vigorously. This reflects that banks are taking the initiative to adjust their liability structure, and wealth management products are replacing deposits as an important source of funds for banks. This trend may have to continue in the future.
RRR and interest rate cuts VS fiscal force, which is more powerful to boost the economy?
The economy is failing, and both monetary and fiscal policies are struggling. The central bank cut the reserve requirement ratio and cut interest rates to inject liquidity into the market, and local governments increased the issuance of special bonds. Which of the two policies will boost the economy better? I'll give you an analysis.
Monetary policy space is limited
At present, the demand of our real economy is insufficient, and the stimulus effect of monetary policy is limited. Funds are reluctant to invest in the real economy, and RRR and interest rate cuts are more just to transfer money from bank deposits to other financial products such as wealth management, which is difficult to effectively stimulate consumption and investment.
Judging from the data of M2 and social finance, the growth rate of money and credit has fallen sharply since the beginning of this year. At the end of April 2024, M2 increased by 11.5% year-on-year, down 0.5 percentage points from the previous month, and the scale of social financing increased by 1.18 trillion yuan in April, 280 billion less than the same period last year. This shows that the monetary policy transmission mechanism is not smooth enough, and the financing demand of the real economy is weak.
Fiscal efforts to support the economy ️ through infrastructure construction
These financial funds are mainly invested in infrastructure construction. Infrastructure investment is particularly critical to stabilizing economic growth and is more closely linked to people's lives. So in the current situation, fiscal force may be more effective than monetary policy.
Since the beginning of this year, the Ministry of Finance has issued special bond quotas several times in advance to support local governments in expanding effective investment. From January to April, 1.65 trillion local government special bonds were issued nationwide, 980 billion more than the same period last year. The issuance of special bonds has accelerated, providing strong support for infrastructure investment.
From the perspective of investment data, from January to April, the national infrastructure investment increased by 9.2% year-on-year, and the growth rate was 2.8 percentage points faster than that in the first quarter, which was significantly faster than other investments. Infrastructure investment has hedged the impact of the downturn in real estate investment and has become a key support for stable growth.
Fiscal and monetary policies work in tandem
Of course, this is not to say that monetary policy is not important. Fiscal and monetary policies must work together to form a joint force in order to better bail out the real economy and promote economic operation within a reasonable range.
Monetary policy should continue to maintain reasonable and abundant liquidity, guide loan interest rates downward, and reduce the financing costs of enterprises. As for the fiscal policy, it is necessary to be more active and promising, expand effective demand, and create a good environment for monetary policy. Only by cooperating with each other can we better boost market confidence and promote high-quality economic development.
brief summary
The sudden drop in deposits has sparked speculation about the direction of the economy. However, judging from the data, funds are more circulated within the financial system, which is difficult to effectively stimulate consumption; There is limited room for banks to continue to raise deposit rates sharply amid negative interest rate differentials; Fiscal efforts may be more effective than monetary policy to boost the economy, but the two still need to work together. Let's continue to pay attention to witness the steady progress of China's economy together.
Resources:
- People's Bank of China: April 2024 Financial Statistics Report
- Ministry of Finance: Local Government Bond Issuance and Debt Balance from January to April 2024
- National Bureau of Statistics: National Economic Operation in April 2024
- 2024 Annual Report and 2024 First Quarter Report of Listed Company